Potash Corp closing in on China contract

After releasing disappointing third-quarter results last week, Potash Corp announced it expected to ink a sales contract with China before the end of the year. However, its contract with India remains uncertain.

Bill Doyle, Potash Corp’s chief executive, told investors last week that negotiations with China are “constructive and ongoing” and he expects shipments to resume by the end of the year. He said the country has met its recent potash needs through a mix of domestic production, inventory withdrawals and rail deliveries, but that it cannot rely solely on these sources for very long.

“Importantly, we believe the draw on China’s inventories should lead to increase sales volumes to his market in 2013,” he said.

Despite the movement with the Chinese contract, India’s contract is uncertain as the government continues to support nitrogen over potash. Doyle told investors that this position has created significant price distortions in the market as farmers apply too much nitrogen and not enough potash, which is damaging the country’s crop nutrition.

In other regions of the world, Doyle remained bullish. He noted that the United States and Latin American potash shipments were very strong and that high crop prices were motivating farmers to increase their fertilizer applications.

Despite Doyle’s bullish comments, the market is slow. Last week Potash Corp announced plans to shutter Rocanville and Lanigan mines in Saskatchewan for eight weeks to better balance supply and demand.